Agreement Pursuant to Section 1.6(q) of Recapitalization Agreement - UAL Corp., Air Line Pilots Association International, and International Association of Machinists and Aerospace Workers
AGREEMENT PURSUANT TO
SECTION 1.6(q) OF RECAPITALIZATION AGREEMENT
WHEREAS, UAL Corporation, a Delaware Corporation (the
'Company'), Air Line Pilots Association International ('ALPA')
and International Association of Machinists and Aerospace Workers
(the 'IAM') are parties to an Amended and Restated Agreement and
Plan of Recapitalization dated March 25, 1994 ('Recapitalization
Agreement');
WHEREAS, the parties to the Recapitalization Agreement
have recognized that due to increases in the price of the common
stock of the Company, it is expected that the Class 1 ESOP
Preferred Stock to be purchased by the Trustee in 1996 and
subsequent years may, unless the number of such shares to be
purchased are adjusted, cause allocations under the ESOP to be in
an amount which would exceed the limitations of Internal Revenue
Code ('Code') Section 415(c); and
WHEREAS, Section 1.6(q) of the Recapitalization
Agreement provides that the parties agree to cooperate to modify
the number of Class 1 ESOP Preferred Shares to be sold and to
make appropriate conforming modifications to the related
documents to avoid allocations in excess of the limitations of
Code Section 415; and
WHEREAS, this agreement ('Agreement') is entered into
pursuant to Section 1.6(q) of the Recapitalization Agreement.
NOW, THEREFORE, the Company, ALPA, and the IAM hereby
agree as follows:
1. Unless otherwise defined in this Agreement,
capitalized terms used in this Agreement shall have the meaning
set forth in the Recapitalization Agreement.
2. The parties hereto recognize that in order to
satisfy the limitations of Code Section 415, it will likely be
necessary to reduce the number of shares of ESOP Preferred
purchased by the Trustee in 1996 and subsequent years. It is the
intent of the parties to set forth in this Agreement a revised
method of determining the number of shares of ESOP Preferred to
be offered to the Trustee for purchase pursuant to Section 1.6(e)
of the Recapitalization Agreement. It is the intent of the
parties hereto that to the extent the number of shares of ESOP
Preferred are reduced under this Agreement, there shall be a
corresponding increase in the number of shares of Supplemental
ESOP Preferred, with the result being that the sum of the ESOP
Preferred and Supplemental ESOP Preferred, on both an annual and
cumulative basis, will be unchanged by this Agreement.
3. The purchases of ESOP Preferred expected to be
made by the ESOP Trustee in 1996, 1997, 1998, and 1999, shall be
determined as if Section 1.6(e) of the Recapitalization Agreement
provided as follows:
'(e) At or about July 12, 1996, and at or about the
next three following anniversaries of July 12, 1996 (each of
the four July 12 dates a 'Measuring Date Anniversary'), the
Company shall negotiate in good faith with the ESOP Trustee
to reach an agreement under which the Company shall issue to
the ESOP Trustee shares of ESOP Preferred at an agreed-upon
price per share (for each applicable plan year, the
'Purchase Price'). If such agreement is reached within 30
days of any Measuring Date Anniversary, then, within five
days thereafter, the Company shall sell to the ESOP Trustee,
and the ESOP Trustee shall purchase from the Company,
pursuant to an agreement substantially in the form of
Exhibit A to this Agreement, a number of shares of ESOP
Preferred (with respect to each such year, the 'Subsequent
Shares'), which number of shares shall equal, for each such
plan year, the Subsequent Year Release Shares (as defined)
divided by the Subsequent Year Decimal (as defined).
(i) The term 'Subsequent Year Release Shares' shall
mean, for each such plan year, the excess of
(xx) the product of
(A) 12/69ths of the Final Number and
(B) the Revised Class 1 Decimal (as
defined below) over
(yy) the number of Year 1 Remaining Shares and
Subsequent Year Remaining Shares (as
defined below) (collectively, 'Tail
Shares') scheduled to be released in such
plan year.
(ii) The term 'Subsequent Year Decimal' shall be
calculated separately for each such plan year and
shall mean one minus the product of
(yy) a fraction (expressed as a decimal) having
a numerator equal to the Dollar Amount and
a denominator equal to the Purchase Price
for the plan year in question, and
(zz) the number of years and fractional years
from the end of the plan year for which
such shares are being issued to March 31,
2000.
(iii) The term 'Revised Class 1 Decimal' shall mean
the factor (not to exceed .7815) which is
determined by the Company no later than each
Measuring Date Anniversary. The amount of the
Revised Class 1 Decimal shall be the amount
which is reasonably estimated to result in the
number of Subsequent Year Release Shares which,
when added to the Tail Shares scheduled to be
released in such plan year, will maximize the
Revised Class 1 Decimal consistent with (ww)
satisfaction of the principles set forth in
Section 1.6(l), (xx) achieving a high degree of
certainty that the limits of Internal Revenue
Code Section 415(c)(6) shall not be exceeded,
(yy) avoiding an allocation of contributions
which would cause all members of an Employee
Group (as defined in the ESOP) to exceed the
limits of Internal Revenue Code Section 415(c),
and (zz) limiting the purchase of ESOP Preferred
so that there can be allocated sufficient shares
of Supplemental ESOP Preferred for each Employee
Group to permit appropriate allocations in the
Supplemental ESOP to individuals whose
allocations in the ESOP reached the limit of
Code Section 415(c). The Company and its
advisors shall, prior to each Measuring Date
Anniversary, present to the Committee (as
defined in the ESOP) the calculation of the
Revised Class 1 Decimal, and the Committee shall
review such calculation to verify that the
Revised Class 1 Decimal was calculated according
to the methodology described above. It is the
understanding of the parties hereto that in
making the verification referred to in the
preceding sentence, the members of the Committee
are acting on behalf of the ALPA (in the case of
the Committee members appointed by ALPA), the
IAM (in the case of the Committee members
appointed by the IAM) and the Company (in the
case of the Committee member appointed by the
Company), and are not acting as fiduciaries. In
making such verification, the members of the
Committee appointed by ALPA shall, acting as a
group, cast a single vote, the members of the
Committee appointed by the IAM shall, acting as
a group, cast a single vote, and the member
appointed by the Company shall cast a single
vote. The calculation of the Revised Class 1
Decimal shall only be considered verified if all
three of such votes are cast in favor of
verification. If the Committee has not verified
the calculation of the Revised Class 1 Decimal
determined by the Company by a Measuring Date
Anniversary, then the Revised Class 1 Decimal
shall be determined pursuant to the provisions
of this Agreement other than Section 1.6(e)
(including Section 1.6(q), which generally
contemplates that the Company, the IAM and ALPA
will cooperate to modify the Class 1 Decimal).
The parties agree that the result of the
calculations described above for each plan year
may be a range of values for the Revised Class 1
Decimal, including but not limited to a value to
be applicable to each possible Purchase Price.
The Subsequent Year Release Shares for each such plan
year shall be released from the ESOP suspense account and
allocated to the accounts of ESOP participants as of the end
of such plan year; provided, however, that by the due date
for each contribution by the Company to be used by the ESOP
Trustee for loan repayment, the Company shall in
consultation with its advisers, make a reasonable estimate
of the maximum contribution which can be made to Part A of
the ESOP (as defined in the ESOP) consistent with (www)
satisfaction of the principles set forth in Section 1.6(l),
(xxx) achieving a high degree of certainty that the limits
of Internal Revenue Code Section 415(c)(6) shall not be
exceeded, (yyy) avoiding an allocation of contributions
which would cause all members of an Employee Group to exceed
the limits of Internal Revenue Code Section 415(c), and
(zzz) limiting the purchase of ESOP Preferred so that there
can be allocated sufficient shares of Supplemental ESOP
Preferred for each Employee Group to permit appropriate
allocations in the Supplemental ESOP to individuals whose
allocations in the ESOP reached the limit of Code Section
415(c). The estimate of the Company referred to in the
preceding sentence shall not be made by reconsidering the
principles set forth in clauses (www) through (zzz), but
shall instead be made by using the same methodology which
was used by the Company (and verified by the Committee) for
the determination of the Revised Class 1 Decimal, and such
methodology shall be applied by using such updated data as
may be reasonably available to the Company prior to the
determination of the contribution. The balance of the
Subsequent Shares for such plan year (the 'Subsequent Year
Remaining Shares') shall be released from the ESOP suspense
account and allocated to the accounts of ESOP participants
in level installments for each full plan year (and prorated
for the quarter ending March 31, 2000) remaining in the
period from the January 1 immediately following such plan
year through March 31, 2000. Notwithstanding the foregoing,
if (aaa) pursuant to this paragraph, the Company's
contribution was not sufficient to cause all Subsequent Year
Release Shares to be released from the ESOP suspense
account, or (bbb) the Company's contribution caused all
members of an Employee Group to reach the limit under
Internal Revenue Code Section 415(c), thus causing the
creation of a suspense account under Treasury Regulation
Section 1.415-6(b)(6)(iii), then the Subsequent Year Release
Shares which were not allocated to the accounts of ESOP
participants in the year such shares were purchased by the
ESOP Trustee shall be considered Subsequent Year Remaining
Shares and shall be allocated in the next following year.
For each of the third through sixth plan years of the
Supplemental ESOP, there shall be credited to the accounts
of Supplemental ESOP participants shares of Supplemental
ESOP Preferred equal to the remainder of (aa) 12/69ths of
the Final Number and (bb) the number of shares of ESOP
Preferred allocated to the accounts of ESOP participants
that year.'
4. The parties agree that the Company shall adopt the
fourth amendment to the ESOP and the fourth amendment to the
Supplemental ESOP in substantially the form attached hereto as
Exhibits B and C, and ALPA and the IAM hereby approve such
amendments.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be duly executed by their respective authorized
officers as of this 16th day of July, 1996.
UAL CORPORATION
By /s/ Douglas A. Hacker
---------------------
Its Senior Vice President and
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Chief Financial Officer
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AIR LINE PILOTS ASSOCIATION,
INTERNATIONAL
By /s/ J. Randolph Babbitt
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Its President
---------
By /s/ Michael H. Glawe
--------------------
Michael H. Glawe
MEC Chairman
INTERNATIONAL ASSOCIATION OF
MACHINISTS AND AEROSPACE WORKERS
By /s/ Kenneth W. Thiede
---------------------
Its President and General Chairman
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